Forecast | Universal Basic Income cures mass unemployment

Within two decades, you’ll live through the automation revolution. This is a period where we replace large chunks of the labor market with robots and artificial intelligence (AI) systems. Many millions will be thrown out of work—chances are you will be too.

In their current state, modern nations and entire economies won’t survive this unemployment bubble. They’re not designed to. That’s why in two decades, you’ll also live through a second revolution in the creation of a new kind of welfare system: the Universal Basic Income (UBI).

Throughout our Future of Work series, we’ve explored the unstoppable march of technology in its quest to consume the labor market. What we haven’t explored are the tools governments will use to support the hordes of unemployed workers technology will make obsolete. The UBI is one of those tools, and at Quantumrun, we feel it’s among the most likely options future governments will employ by the mid-2030s.

What is a Universal Basic Income?

It’s actually surprisingly simple: the UBI is an income granted to all citizens (rich and poor) individually and unconditionally, i.e. without a means test or work requirement. It’s the government giving you free money every month.

In fact, it should sound familiar considering that senior citizens receive essentially the same thing in the form of monthly social security benefits. But with UBI, we’re basically saying, ‘Why do we only trust seniors to manage free government money?’

In 1967, Martin Luther King Jr. said, “The solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income.” And he’s not the only one who has made this argument. Nobel Prize economists, including Milton Friedman, Paul Krugman, F. A. Hayek, among others, have supported the UBI as well. Richard Nixon even tried to pass a version of the UBI in 1969, albeit unsuccessfully. It’s popular among progressives and conservatives; it’s just the details they disagree on.

At this point, it’s natural to ask: What exactly are the benefits of a UBI, aside from getting a free monthly paycheck?

UBI effects on individuals

When going through the laundry list of UBI’s benefits, it’s probably best to start with the average Joe. As mentioned above, the biggest impact a UBI will have on you directly is that you’ll become a few hundred to a few thousand dollars richer every month. It sounds simple, but there’s way more to it than that. With a UBI, you’ll experience:

A guaranteed minimum living standard. While the quality of that standard may vary from country to country, you’ll never have to worry about having enough money to eat, clothe, and house yourself. That underlying fear of scarcity, of not having enough to survive should you lose your job or get sick, will no longer be a factor in your decision-making.

A greater sense of well being and mental health knowing your UBI will be there to support you in times of need. Day to day, most of us rarely acknowledge the level of stress, anger, envy, even depression, we carry around our necks from our fear of scarcity—a UBI will lessen those negative emotions.

Improved health, since a UBI will help you afford better quality food, gym memberships, and of course, medical treatment when needed (ahem, USA).

Greater freedom to pursue more rewarding work. A UBI will give you the flexibility to take your time during a job hunt, instead of being pressured or settling for a job to pay rent. (It should be re-emphasized that people will still get a UBI even if they have a job; in those cases, the UBI will be a pleasant extra.)

Greater freedom to continue your education on a regular basis to better adapt to the changing labor market.

True financial independence from individuals, organizations, and even abusive relationships that try to control you through your lack of income.

UBI effects on businesses

For businesses, the UBI is a double-edged sword. On one hand, workers will have far more bargaining power over their employers, since their UBI safety net will allow them to afford to refuse a job. This will increase the competition for talent between competing companies, forcing them to offer workers greater perks, starting salaries, and safer working environments.

On the other hand, this increased competition for labor will reduce the need for unions. Labor regulations will be relaxed or voided en masse, freeing up the labor market. For example, governments will no longer fight for a minimum wage when everyone’s basic living needs are met by a UBI. For some industries and regions, it will allow companies to reduce their payroll costs by treating the UBI as a government subsidy for their employee salaries (similar to Walmart’s practice today).

On a macro level, a UBI will lead to more businesses overall. Imagine your life with a UBI for a moment. With the UBI safety net backing you, you could take more risks and start that dream entrepreneurial venture you’ve been thinking about—especially since you’ll have more time and finances to start a business.

UBI effects on the economy

Given that last point about the entrepreneurial explosion the UBI could nurture, it’s probably a good time to touch on the UBI’s potential impact on the economy overall. With a UBI in place, we’ll be able to:

Better support the millions pushed out of the workforce due to the machine automation aftermath described in the previous chapters of the Future of Work and Future of the Economy series. The UBI will guarantee a basic living standard, one that will give the unemployed time and peace of mind to retrain for the future labor market.

Better recognize, compensate, and value the work of previously unpaid and unrecognized jobs, such as parenting and in-home sick and elderly care.

(Ironically) remove the incentive to stay unemployed. The current system punishes the unemployed when they find work, because when they do land a job, their welfare payments are cut, usually leaving them to work full-time without a noticeable increase in their income. With a UBI, this disincentive to work will no longer exist, since you’ll always receive the same basic income, except your job’s salary will add to it.

More easily consider progressive tax reform without the spectre of ‘class warfare’ arguments shutting them down—e.g. with the population’s income level evening out, the need for tax brackets gradually becomes obsolete. Implementing such reforms would clarify and simplify the current tax system, eventually shrinking your tax return to a single page of paper.

Increase economic activity. To summarize the permanent income theory of consumption down to two sentences: Your current income is a combination of permanent income (salary and other recurring income) plus transitory income (gambling winnings, tips, bonuses). Transitory income we save since we can’t count on getting it again the following month, whereas permanent income we spend because we know our next paycheck is only a month away. With UBI increasing the permanent income of all citizens, the economy will see a large spike in permanent customer spending levels.

Expand the economy through the fiscal multiplier effect, a proven economic mechanism that describes how an extra dollar spent by low-wage workers adds $1.21 to the national economy, compared to the 39 cents added when a high income earner spends that same dollar (numbers calculated for the US economy). And as the numbers of low-wage workers and the unemployed mushroom in the near future thanks to job-eating robots, the UBI’s multiplier effect will be all the more necessary to protect the economy’s overall health.

UBI effects on government

Your federal and provincial/state governments will also see a range of benefits from implementing a UBI. These include reduced:

Government bureaucracy. Instead of managing and policing dozens of different welfare programs (the US has 79 means-tested programs), these programs would all be replaced by a single UBI program—substantially reducing overall government administrative and labor costs.

Fraud and waste from people gaming the various welfare systems. Think about it this way: by targeting welfare money to households instead of individuals, the system encourages single parent households, while targeting rising incomes disincentivizes finding a job. With the UBI, these counterproductive effects are minimized and the welfare system is simplified overall.

Illegal immigration, as individuals who once considered hopping a border fence will realize it’s far more profitable to apply for citizenship to access the country’s UBI.

Policymaking that stigmatizes parts of society by splitting it up into different tax brackets. Governments can instead apply universal tax and income laws, thereby simplifying legislation and reducing class warfare.

Social unrest, as poverty will be effectively wiped out and a set standard of living guaranteed by the government. Of course, the UBI won't guarantee a world without protests or riots, their frequency will at least be minimized in developing nations.

Real world examples of the UBI's effects on society

By removing the link between income and work for one’s physical survival, the value for various types of labor, paid or unpaid, will begin to even out. For example, under a UBI system, we’ll begin seeing an influx of qualified individuals applying for positions in charitable organizations. That’s because the UBI makes involvement in such organizations less financially risky, rather than a sacrifice of one’s income-earning potential or time.

But perhaps UBI’s most profound impact will be on our society overall.

It’s important to understand that the UBI isn’t just a theory on a chalkboard; there have been dozens of tests deploying a UBI in towns and villages around the world—with largely positive results.

For example, a 2009 UBI pilot in a small Namibian village gave community residents an unconditional UBI for a year. The results found that poverty fell to 37 per cent from 76 per cent. Crime fell 42 per cent. Child malnutrition and school dropout rates crashed. And entrepreneurship (self-employment) rose 301 per cent.

On a more subtle level, the act of begging for food disappeared, and so too did the social stigma and barriers to communication begging caused. As a result, community members could more freely and confidently communicate with each other without the fear of being seen as a beggar. Reports found this led to a closer bond between different community members, as well as greater participation in community events, projects, and activism.

In 2011-13, a similar UBI experiment was piloted in India where multiple villages were given a UBI. There, just as in Nambia, community bonds grew closer with many villages pooling their money for investments, such as repairing temples, buying community TVs, even forming credit unions. And again, researchers saw marked increases in entrepreneurialism, school attendance, nutrition, and savings, all of which were far greater than in the control villages.

As noted earlier, there is a psychological element to UBI as well. Studies have shown that children who grow up in income-depressed families are more likely to experience behavioral and emotional disorders. Those studies also revealed that by raising a family’s income, children are more likely to experience a boost in two key personality traits: conscientiousness and agreeableness. And once those traits are learned at an early age, they tend to carry forward into their teenage years and into adulthood.

Imagine a future where a growing percentage of the population exhibit higher levels conscientiousness and agreeableness. Or put another way, imagine a world with less assholes breathing your air.

Arguments against UBI

With all the kumbaya benefits described thus far, it’s about time we addressed the main arguments against UBI.

Among the biggest kneejerk arguments is that the UBI will disincentivize people from working and create a nation of couch potatoes. This train of thought isn’t new. Since the Reagan era, all welfare programs have suffered from this kind of negative stereotype. And while it feels true on a common sense level that welfare turns people into lazy moochers, this association has never been empirically proven. This style of thinking also assumes that money is the only reason motivating people to work.

While there will be some who use UBI as a way to eek out a modest, work-free life, those individuals are likely the ones who will be displaced from the labor market by technology anyway. And since a UBI will never be large enough to allow one to save, these people will end up spending most-to-all of their income monthly, thereby still contributing to the economy by recycling their UBI back to the public through rent and consumption purchases.

In reality, a good deal of research points against this couch potato/welfare queen theory.

A 2014 paper called "Food Stamp Entrepreneurs" found that during the expansion of welfare programs in the early 2000s, households owning incorporated businesses grew by 16 per cent.

A recent MIT and Harvard study found no evidence that cash transfers to individuals discouraged their interest in working.

Two research studies conducted in Uganda (papers one and two) found giving cash grants to individuals helped them afford to learn skilled trades that ultimately led to them working longer hours: 17 per cent and 61 per cent longer in the two subject villages.

Isn’t a Negative Income Tax a better alternative to a UBI?

Another argument talking heads pose is whether a Negative Income Tax would be a better solution than a UBI. With a Negative Income Tax, only people making less than a certain amount will receive a supplemental income—put another way, people with a lower income will not pay income tax and will have their income topped up to a certain predetermined level.

While this may be a less expensive option compared to a UBI, it poses the same administrative costs and fraud risks associated with current welfare systems. It also continues to stigmatize those receiving this top up, further worsening the class warfare debate.

How will society pay for the Universal Basic Income?

Finally, the biggest argument levelled against the UBI: How the hell are we going to pay for it?

Let’s take the US as our example nation. According to Business Insider’s Danny Vinik, “In 2012, there were 179 million Americans between the ages of 21 and 65 (when Social Security would kick in). The poverty line was $11,945. Thus, giving each working-age American a basic income equal to the poverty line would cost $2.14 trillion.”

Using this two trillion figure as a base, let’s break down how the US could pay for this system (using rough and round numbers, since—let's be honest—no one clicked on this article to read an excel budget proposal thousands of lines long):

First, by eliminating all existing welfare systems, from social security to employment insurance, as well as the massive administrative infrastructure and workforce employed to deliver them, the government would save about one trillion annually that can be reinvested into the UBI.

Reforming the tax code to better tax investment income, remove loopholes, address tax havens, and ideally implement a more progressive flat tax across all citizens will help generate an additional 50-100 billion annually to fund the UBI.

Rethinking where governments spend their revenue can also help close this funding gap. For example, the US spends 600 billion annually on its military, more than the next seven largest military spending countries combined. Wouldn’t it be possible to divert a portion of this funding to a UBI?

Given the permanent income theory and fiscal multiplier effect described earlier, it’s also possible for the UBI to (in part) fund itself. One trillion dollars dispersed to the US population has the potential to grow the economy by 1-200 billion dollars annually through increased consumer spending.

Then there’s the matter of how much we spend on energy. As of 2010, the US’s total energy expenditure was $1.205 trillion (8.31% of GDP). If the US transitioned its electricity generation to fully renewable sources (solar, wind, geothermal, etc), as well as pushed the adoption of electric cars, the annual savings would be more than enough to fund the UBI. Frankly, aside from that whole matter of saving our planet, we can’t think of any better reason to invest in the green economy.

Another option proposed by the likes of Bill Gates and others is simply to add a nominal tax on all robots used in the manufacturing and delivery of products or services. The cost savings of using robots over humans for the factory owner will far outweigh any modest tax imposed on the use of said robots. We would then refunnel this new tax revenue into the BCI.

Finally, the future cost of living is going to drop considerably, thereby reducing the total UBI cost for each person and society as a whole. For example, within 15 years, personal ownership of cars will be replaced by widespread access to autonomous carsharing services (see our Future of Transportation series). The rise of renewable energy will substantially lower our utility bills (see our Future of Energy series). GMOs and food substitutes will offer cheap basic nutrition for the masses (see our Future of Food series). Chapter seven of the Future of Work series explores this point further.

A socialist pipe dream?

The last resort argument levelled upon the UBI is that it’s a socialist extension of the welfare state and anti-capitalist. While it’s true the UBI is a socialist welfare system, that doesn’t necessarily mean it’s anti-capitalist.

In fact, it’s due to capitalism’s unsurpassed success that our collective technological productivity is quickly reaching a point where we’ll no longer need mass employment to provide an abundant standard of living for all citizens. Like all welfare programs, the UBI will act as a socialist correction to capitalism’s excess, allowing capitalism to continue serving as society’s engine for progress without pushing millions into destitution.

And just as most modern democracies are already half socialist—spending on welfare programs for individuals, welfare programs for businesses (subsidies, foreign tariffs, bailouts, etc.), spending on schools and libraries, militaries and emergency services, and so much more—adding the UBI will simply be an extension of our democratic (and secretly socialist) tradition.

Inching toward the post-employment age

So there you go: A fully funded UBI system that can eventually save us from the automation revolution soon to sweep our labor market. In fact, the UBI could help society embrace automation’s labor saving benefits, instead of being afraid of it. In this manner, the UBI will play an important role in humanity's march towards a future of abundance.

The next chapter of our Future of Work series will explore what the world might look like after 47 per cent of today’s jobs disappear due to machine automation. Hint: It’s not as bad as you’d think. Meanwhile, the next chapter of our Future of the Economy series will explore how future life extension therapies will help stabilize world economies.